The Financial Times, apparently cowed by Brexit-boosters, has started underplaying Brexit train wrecks. For instance, a story in the pink paper with the anodyne headline UK-US Open Skies talks hit Brexit turbulence would be more aptly called “US Using Open Skies Negotiations to Eviscerate UK Airlines.”
As we and others have warned, as of Brexit, meaning March 2019, the UK is out of all sorts of agreements with third countries that it had participated in via membership in the EU. A transition agreement with the EU will not extend to these deals with other countries and trade blocks. The UK has a daunting number of agreements to try to stitch up in a bit more than a year, and it barely seems to be taking this looming problem seriously.
We’ve cited this section and visual from a May 2017 Financial Times article before to underscore the magnitude of what needs to get done:
While Brexit is often cast as an affair between Brussels and London, in practice Britain’s exit will open more than 750 separate time-pressured mini-negotiations worldwide, according to Financial Times research. And there are no obvious shortcuts: even a basic transition after 2019 requires not just EU-UK approval, but the deal-by-deal authorisation of every third country involved…
Each agreement must be reviewed, the country approached, the decision makers found, meetings arranged, trips made, negotiations started and completed — all against a ticking clock and the backdrop of Brexit, with the legal and practical constraints that brings. Most inconvenient of all, many countries want to know the outcome of EU-UK talks before making their own commitments….
At its most granular level, the sheer administrative scale of the “third country” question is striking. Through analysis of the EU treaty database, the FT found 759 separate EU bilateral agreements with potential relevance to Britain, covering trade in nuclear goods, customs, fisheries, trade, transport and regulatory co-operation in areas such as antitrust or financial services.
Some of the 759 are so essential that it would be unthinkable to operate without them. Air services agreements allow British aeroplanes to land in America, Canada or Israel; nuclear accords permit the trade in spare parts and fuel for Britain’s power stations. Both these sectors are excluded from trade negotiations and must be addressed separately….
Par for the utter lack of any Brexit-related planning, the closest the Government had done to even acknowledge that this problem existed was a pathetic request in a technical paper last month that amounted to the UK asking the rest of the world to be nice and act as if those old deals they had though the EU were still operative.
As we pointed out even before the Financial Times did the heavy lifting of scoping out how many third country pacts were in play, the UK is going to be at the mercy of pretty much everyone. Unless a country is a decidedly one-sided beneficiary of its current arrangement with the UK, having the UK reopen the agreement gives the other side the opportunity to demand better terms. And all these other countries will have even more of an upper hand with the UK than usual because:
1. The UK will be in a huge rush to get agreements inked or at least provisionally settled to minimize disruption. The side that is in a hurry always has less bargaining leverage
2. The UK is so thin on staff with any relevant technical and negotiating expertise that it will be all too easy for other countries to slip in innocuous-seeming language that is very beneficial to them and have it go undetected (or even if the UK discerns it’s not good for them, they don’t have the time and resources to push back all that hard)
3. The UK is way smaller than the EU, and has also made clear it intends to diverge from other countries, and those reasons separately argue for getting a worse deal than the one currently in place with the EU
The Financial Times report on the Open Skies negotiations shows how things are play out precisely according to script. The UK desperately needs to secure this sort of agreement. Its air transit agreements are completely outside the WTO and no deal means no fallback. It literally means UK planes could not fly into foreign airspace, nor could non-UK flights land in or transit over UK airspace. Some articles have set forth the issues, such as Aviation cliff-edge: How Brexit is sabotaging a British success story by Ian Dunt last month (hat tip Richard Smith). Warning: I can pretty much guarantee what you will read in that post is much more dire in terms of what the UK needs to do and where it will wind up even in an optimistic scenario than what you imagine, even if you have an active imagination.
One of the many key points that Dunt makes is that in the old days of air travel, airlines in countries like the UK were allowed to fly to third countries only if the flight originated or ended in the country where the airline lived. You could have intermediate stops. Another key point (and I am simplifying greatly here, again I strongly urge you to read his post) is that the UK’s safety and equipment certification (which is extremely complicated) comes via the European Aviation Safety Agency. If the UK would be sensible and opt to stay in the ESEA, it could continue to benefit from the big administrative burden it takes, as well as participate in agreements that allowed for airlines to go from point to point outside their home market, like British Airways offering flights from, say, Milan to Amsterdam. Per Dunt, analysts predict that for UK airlines to fall outside ESEA would increase prices to UK customers by 15% to 30%. But since staying in ESEA means accepting the jurisdiction of the European Court of Justice, hard Brexiters are determined to leave.
A final key point: the US’s FAA also relies on the ESEA to oversee safety and equipment standards for its carriers operating in the US.
So the UK, really really really needing an airlines deal, went to its good buddy, the US, first. The UK is finding out how friendly other countries are when economic issues are at stake. From the Financial Times:
The US is offering Britain a worse “Open Skies” deal after Brexit than it had as an EU member, in a negotiating stance that would badly hit the transatlantic operating rights of British Airways and Virgin Atlantic…
The talks were cut short after US negotiators offered only a standard bilateral agreement. These typically require airlines to be majority owned and controlled by parties from their country of origin.
Such limits would be problematic for British carriers as they have large foreign shareholdings. Under existing arrangements, UK-based airlines are covered by the “Open Skies” treaty that requires them to be majority EU owned.
One person attending the London meetings to “put Humpty Dumpty back together” said: “You can’t just scratch out ‘EU’ and put in ‘UK’.” A British official said it showed “the squeeze” London will face as it tries to reconstruct its international agreements after Brexit, even with close allies such as Washington…..
In its opening stance the US side rolled back valuable elements of the US-EU agreement, the most liberal open skies deal ever agreed by Washington. Its post-Brexit offer to the UK did not include membership of a joint committee on regulatory co-operation or special access to the Fly America programme, which allocates tickets for US government employees. Washington also asked for improved flying rights for US courier services such as FedEx…
The biggest sticking-point is a standard ownership clause in Washington’s bilateral aviation agreements that would exclude airlines from the deal if “substantial ownership and effective control” does not rest with US or UK nationals respectively….
London asked the US to adjust its long-held policy since it would exclude the three main British-based transatlantic carriers, which all fall short of the eligibility criteria….
One senior EU official said… “The Americans will play it hard. The mood has changed [against liberalisation], it’s the worst time to be negotiating.”
Despite the fact that the UK walked out of the negotiations, both sides stressed that keeping planes flying was critically important and that there was no reason to think that there wouldn’t eventually be a deal.
But this example illustrates how countries like the US, whether by virtue of sheer economic heft or other advantages, are willing to play hardball with the UK, and the UK isn’t is a position to push back all that much. The Brits are going to learn that being a small open economy doesn’t confer as much freedom of operation as Brexit cheerleaders would have you believe.